This Is the Average 401(k) Balance. How Do You Compare?

Accurately gauging your retirement progress can be a challenge. For one thing, even as you near retirement age, it can still feel like this distant, nebulous concept. (This is a mental hurdle more than a financial one.)

Another part of the issue is that a lot of the power of investing for retirement is taking advantage of compound interest. This means things start slow -- and stay slow for years. Younger folks, in particular, may struggle to see the progress while balances are growing.

That's where data can help. Looking at how you stack up to other savers can help put your own investments into perspective. One very useful data source for 401(k) savings is the annual How America Saves Report from Vanguard. Here's what the 2023 edition has to say.

Framing the data

The Vanguard report analyzes roughly 5 million DC (defined contribution) plan participants across the company's business. The median age was 43 years old, and the median participant income was about $82,000.

As you're considering the balance numbers below, keep these numbers in mind. How does your age compare to the median? Are you younger or older? If you're much younger or older than the median age here, then weight your own balances accordingly.

Similarly, is your income much higher or lower? Your current lifestyle, at your current income, can be a strong indicator of the type of lifestyle and income you may want or need in retirement. You may not need to save as much as someone with a higher cost of living (and vice versa).

Average 401(k) balance: $112,572

The average account balance for Vanguard participants in 2022 was $112,572. This is actually a 20% decline from the previous year's average of $141,542. However, it is still higher than the averages from 2013 through 2019.

One important thing to keep in mind here is that this is the average balance. This means they added up the total balances of everyone, then divided by the total number of participants.

While potentially useful, the problem with using this number to compare your own savings is that it's not exactly a fair representation of everyone. In other words, a very small number of people with very large balances will cause the average to be quite high. In fact, the report indicates that about 75% of participants had balances below the average.

Median 401(k) balance: $27,376

To get a better gauge of how you stack up more generally, you're going to want to look at the median balance. Essentially, if you listed all of the balances in order of size, the median balance is the one right in the middle of the list.

According to the Vanguard report, the median balance for 2022 was $27,376.

This is just 24% of the average balance. And for half of the participants, it's actually still more than they have in their accounts. Indeed, one in three participants had an account balance of less than $10,000.

How to optimize your 401(k) investments

We can attribute some of the low median balances to age; if the median age is 43, that means at least half of participants are younger than that. However, there are also a good many folks in this report who may need to think hard about their current rate of retirement savings.

If you're concerned about your own rate of investing for retirement, there are things you can do:

• Make sure you're getting your full company match. Many companies offer some level of retirement matching, usually a few percentage points. Since this is use-it-or-lose-it money, be sure you're contributing at least enough to maximize any available employer matching.
• Catch up if you can. Most 401(k) and IRAs offer "catch up" contributions for older savers who need to make up for lost time. If you can save a little extra, take advantage of these benefits.
• Take (reasonable) risks. When you first set up an account with a broker, it may have a default investment option that's more on the conservative side. While there's a case for investing conservatively when you're close to retirement, younger savers should take a little more risk (e.g., invest a little more in stocks) to see more growth.
• Check your investments and rebalance regularly. Over time, your portfolio can change, and you may find you have a larger percentage of your money in cash, bonds, or stocks than you started with. Keep an eye on your portfolio and rebalance when necessary so you can be sure you're always maximizing your return.

Saving for retirement is a long game. Don't be discouraged if your savings aren't over that six-figure mark. Save what you can, stay on top of your investments, and keep on truckin'.